China pledged to step up stimulus measures as the economy faces what it described as “new” difficulties and a “tortuous” recovery. The Politburo of the ruling Communist Party met this week to discuss the direction of China’s economic policy for the second half of 2023. (Reuters Photo)

Macro policies: The politburo urged a “proactive” fiscal stance, “prudent” monetary policy, a stable yuan, livelier capital markets, measures to defuse mounting financial risks, and improvements in business and consumer confidence. It also flagged unspecified reductions in taxes and fees and the issuance of special local government bonds, which usually fund infrastructure investment. However, it indicated that any central bank liquidity injections or interest rate cuts will be limited in size.

Property: The politburo removed a key phrase from its previous meeting that cited President Xi Jinping as saying “Houses are for living, not for speculation,” sparking a rally in the shares of battered property firms. While some analysts expect a further easing of property market regulations to slow the sector’s downturn, the politburo signalled a “city-based” approach rather than nationwide changes. It also called for “more affordable” housing, suggesting state-led investment into new projects.

Local government debt: The politburo said China will formulate “a basket of plans” to resolve risks stemming from local government debt, which economists estimate at more than $9 trillion. This was seen as more constructive than its earlier pledge to “adamantly curb any new hidden debts.” Investors have been looking for more clarity on Beijing’s plans to address local government financing issues since the property market bubble burst in 2021 and many cities’ key source of revenue - land auctions - took a major hit.

Household consumption: The politburo reiterated its intention to turn household consumption into a key driver of growth. It flagged its intention to boost consumption of autos, electronic products and household goods and promote tourism, sports, entertainment and culture. However, it did not mention any direct measures that would immediately boost household income, such as consumption vouchers, leaving many economists disappointed that China’s plans to lift demand consist of subsidising manufacturers instead of consumers.

Employment: The politburo said efforts should be taken to “stabilise employment from a strategic perspective,” signalling that Chinese leaders are concerned that a sluggish job market poses social instability risks. Policymakers want the private sector to regain confidence and start investing, thus creating jobs for more than 20% of youth seeking employment. The politburo also gave a nod to industries that have been bleeding jobs in recent years and are particularly attractive to university graduates, such as artificial intelligence, the platform economy and advanced manufacturing.

Trade: The politburo said China will “actively expand” imports and exports and promote trade balance. It also said China will improve its ability to cope with external shocks and safeguard its economic sovereignty and security. The politburo did not mention any specific trade issues or partners, such as the ongoing tensions with the United States or the prospects of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Innovation: The politburo said China will accelerate the development of strategic emerging industries and key core technologies. It also said China will enhance its independent innovation capabilities and strengthen intellectual property rights protection. The politburo did not elaborate on what kind of industries or technologies it considers strategic or core, but some analysts believe they include areas such as semiconductors, biotechnology, quantum computing and artificial intelligence.

Green development: The politburo said China will implement the national carbon emissions trading system and promote green and low-carbon development. It also said China will strengthen ecological protection and restoration and improve environmental governance. The politburo did not provide any specific targets or timelines for achieving its goals of peaking carbon emissions by 2030 and reaching carbon neutrality by 2060.

Rural revitalisation: The politburo said China will deepen rural reforms and promote rural revitalisation. It also said China will improve the quality and efficiency of agricultural production and increase farmers’ income and well-being. The politburo did not mention any concrete measures or policies to support rural development, such as land reform, agricultural subsidies or rural infrastructure investment.